Skip to main content

Q&A with Professor Shon Hiatt on Energy, Urgency, and Economics

Q&A with Professor Shon Hiatt on Energy, Urgency, and Economics

The UN's COP 28 opens today with hopes to accelerate global climate action

Color photo of Professor Shon Hiatt

Professor Shon Hiatt
[USC Photo]

Stay Informed + Stay Connected

The heat is on as hundreds of governments, environmental organizations, community groups, think tanks, businesses, and other stakeholders head to Dubai, United Arab Emirates, on Thursday, November 30th for COP 28. The United Nations Climate Change Conference takes place every year to discuss fossil fuel dependency and climate action urgency on a global scale. While opportunities are endless, challenges abound.

Shon Hiatt, director of Marshall's BUSINESS OF ENERGY TRANSITION INITIATIVE and an associate professor of management and organization, shares key thoughts ahead of the crucial conference:

Interviewer: Climate pledges are not meeting the urgency needed. Can we expect a commitment among countries and stakeholders to “phase out” fossil fuels? If not, will a “phase down” commitment be another delay tactic or a step in the right direction?

Shon Hiatt: It’s doubtful we can expect a realistic commitment among countries to completely phase out hydrocarbons anytime soon. Hydrocarbons remain integral to various industrial processes, such as steel, fertilizer, cement, glass, and plastics manufacturing, without affordable and scalable alternatives in place. However, there is potential for reduced hydrocarbon consumption in areas like ground transportation and electricity generation in advanced economies with high GDP.

What immediate steps to scale up energy transition solutions should be discussed and agreed upon at the conference?

SH: Transitioning to lower carbon energy sources demands significant capital. Consequently, there is a need for candid discussions on the sources and cost of capital. Several governments are grappling with unsustainable budget deficits since 2020. This is exemplified by the United States, which is currently running an annual deficit of nearly $2 trillion, with projected debt servicing costs reaching $1 trillion annually. Traditional incentives to stimulate additional energy investment in the U.S. beyond the INFLATION REDUCTION ACT and INFRASTRUCTURE bills will be limited. European countries share similar fiscal challenges. However, budget surpluses in some Middle Eastern countries and China's current state-directed economy toward wind, solar, and batteries appear promising for business investment.

Major economies have “agreed” to pursue efforts to triple renewable energy capacity by 2030. What are ways that goal can be achieved? Can that goal be achieved without a reduction in CO2 emissions?

SH: Numerous countries are set to triple their renewable energy capacity from 2020 to 2030, thanks to government subsidies and mandates. The extent to which this contributes significantly to reducing CO2 emissions is debatable, given that a substantial portion of these products is manufactured in China, primarily relying on energy derived from coal.

It’s an all-in moment. Countries can make the pledges, but how can the private sector lead the way in energy transition? How can finance and technology improve energy transformation?

SH: Companies make investments when there is a potential for profit, and these profits hinge on the input and capital costs linked to energy products and services, as well as consumers' willingness to pay. Consumers in the U.S. seem to have reached their financial limits, thereby capping the prices of sustainable energy products and services. The foremost challenge for companies and startups in energy is escalating costs, particularly in materials and borrowing expenses. While current monetary policy in the U.S. aims to reduce inflation, its impact is offset by substantial fiscal (government) stimulus. A collaborative effort between Congress and the Federal Reserve could significantly contribute to lowering inflation, thereby easing the costs for investment in innovative energy solutions.